Financial instruments

Interest rate risk to cash flows relates to cash held in deposit accounts and also relates to variable interest rates on debt. the Company does not anticipate significant negative interest rate effects over the long term since the level of liquid funds on the balance sheet date are only available until investments are made and will be subsequently tied up in projects according to plan.

Generally, reference is made to the risk report in DeMIRe’s group management report.

Financial risk management

the executive Board regularly monitors and actively manages the credit risks which are inherent in the Group’s operating activities and the risks related to the Group’s financing activities. As a result of these measures, the consolidated financial statements were prepared on the assumption of a going concern.

the Group’s financial assets mainly consist of interests and loans to companies accounted for using the equity method, other loans, trade accounts receivable and other receivables, financial receivables and other financial assets, as well as bank deposits. the majority of trade accounts receivable consists of rent receivables. potential defaults in this context are taken into consideration.

the Group’s financial liabilities comprise mainly bonds, bank loans, other loans, overdrafts and trade accounts payable. the main purpose of these financial liabilities is to finance the Group’s operations.

the Group is exposed to various financial risks as a result of its business activities: foreign currency risk, interest rate risk, credit risk, and liquidity risk. the overarching risk management system concentrates on the continual identification and active management of typical business risks. this system accepts risks within a certain range if they offer the opportunity for commensurate returns. the goal is to limit the exposure to peak risks so that the Company’s continuance is not jeopardised.

the executive Board identifies, evaluates, and hedges financial risks in close collaboration with the asset manager and in coordination with the Group’s Supervisory Board.

loan agreements exist in the Group that contain financial covenants stipulated by the banks. non- compliance with these financial covenants could lead to extraordinary terminations of these agreements by the banks. the financial covenants concern financial ratios of the respective real estate portfolio, particularly the debt service cover ratio (DSCR), the interest cover ratio (ICR) and the loan-to-value (ltV) debt ratio. the calculations are based on the specifications set by the creditors in the loan agreement. the monitoring, compliance and reporting of the financial covenants specified in the loan agreements for the properties financed is carried out by DeMIRe’s management, treasury and asset management areas. Depending on the type of financing, the financial covenants are reported to the creditors on a quarterly, semi-annual or annual basis, or the creditors are provided with the underlying economic ratios. Should DeMIRe fail to comply with the financial covenants, the creditors would be entitled to demand additional guarantees from the debtor. In that case, the loans would be in default. If the default persisted for a longer period of time and could not permanently be resolved, the creditors have a special right of termination. DeMIRe complied with all financial covenants for real estate financing as of the balance sheet date and, therefore, there was no default.

Foreign currency risk

there is no foreign currency risk for the existing portfolio of commercial real estate in Germany because all transactions are conducted in euros.

the existing investments outside of Germany are subject to translation risk until the point of their complete disposal.

Any change in the project’s existing assets and liabilities has an effect on the currency translation reserve within other comprehensive income. When foreign assets are sold, there is a risk that the accumulated translation differences within the currency translation reserves, which have previously been recognised under other comprehensive income, will need to be recognised through profit or loss in the period of the assets’ disposal. If the Group’s liabilities or receivables are maintained in a foreign currency, there will be an effect in the consolidated income statement.

projects in eastern europe and the Black Sea Region are handled in the same currency when possible and feasible. Hedging of low levels of residual exchange rate risk, which is essentially limited to the equity invested and the profit potential, occurs only in isolated cases. Generally, preference is given to hedging on an aggregated basis rather than on the basis of individual project-related risks. Hedging is only considered when certain fluctuation ranges have been exceeded for certain currencies and is limited to the equity invested (and not for the potential profit). In summary, the management of exchange rate risks is geared towards accepting currency risk within a certain range. the foreign currency hedging strategy is determined in close coordination with the Supervisory Board.

the following table shows the breakdown of assets and liabilities by currency (euRk):

January 1, 2015 -

decemBer 31, 2015 euRk others total

Investments accounted for using the equity method 3,136 0 3,136

Investment properties 915,089 0 915,089

loans to investments accounted for using the equity method 553 0 553

trade accounts receivable and other receivables 14,270 117 14,387

Financial receivables and other financial assets 25,925 95 26,020

Cash and cash equivalents 28,455 12 28,467

Investments held for sale accounted for using the equity method 13,005 0 13,005

other assets 28,855 3,433 32,288

1,029,288 3,657 1,032,945

non-current financial debt 671,032 0 671,032

Current financial debt 46,336 107 46,443

other liabilities 50,444 124 50,568

767,812 231 768,043

april 1, 2014 –

decemBer 31, 2014 euRk others total

Investments accounted for using the equity method 2,613 0 2,613

Investment properties 333,070 0 333,070

loans to investments accounted for using the equity method 2,857 0 2,857

trade accounts receivable and other receivables 9,161 126 9,287

Financial receivables and other financial assets 892 29 921

Cash and cash equivalents 4,379 18 4,397

other assets 14,969 4,898 19,867

367,941 5,071 373,012

non-current financial debt 248,072 20 248,092

Current financial debt 47,499 74 47,573

other liabilities 19,117 3,600 22,717

A change in the exchange rate of +/– 10 % changes the value of the assets and liabilities as follows:

31/12/2015

+ 10 % 31/12/2015- 10 % 31/12/2014+ 10 % 31/12/2014- 10 %

ron (romania) in eurk

Assets -152 186 -115 141

liabilities -1 2 0 0

Gel (Georgia) in eurk

Assets -127 155 -123 150

liabilities -18 22 -28 34

uah (ukraine) in eurk

Assets -10 13 -190 232

liabilities 0 0 -300 367

BGn (Bulgaria) in eurk

Assets -41 50 -32 40

liabilities -2 2 -7 9

interest rate risk

to finance its German commercial real estate, the DeMIRe Group uses debt in a degree customary for the industry consisting of both variable and fixed-interest loans as well as tradeable instruments that contain options for conversion into shares of the Company or Fair Value ReIt-AG.¬

the activities of DeMIRe group companies are exposed mainly to financial risks from changes in interest rates. therefore, DeMIRe also uses derivative financial instruments to manage its interest rate risks. Interest rate swaps are used to minimise interest rate risk when interest rates are rising.

At the balance sheet date, interest rate hedges existed in the form of purchased interest rate derivatives with a nominal volume of euRk 36,149 (previous year: euRk 0), which were acquired in the course of purchasing real estate companies:

eurk nominal volume Market values

2015 2014 2015 2014

Interest rate swaps 36,149 0 -829 0

In subsequent years, the following net payment obligations for the Company originated from the interest rate swaps based on the measurement as at the balance sheet date: an amount of euRk 386 has a term of up to one year, an amount of euRk 438 has a term between one and five years and an amount of euRk 15 has a term of over five years.

All derivative financial instruments purchased in the reporting year are not designated in a hedging relationship.

the DeMIRe Group utilises debt to finance its real estate projects sometimes at variable interest rates. As a consequence, the DeMIRe Group is exposed to interest rate risk since increases in the interest rate level increases its financing costs. the following table assumes an increase in the interest rate level of +100 and -100 basis points. Assuming all other parameters remained unchanged, an increase or decrease of the Company’s interest expenses would lead to the following interest expenses:

interest rate sensitiVity analysis eurk

31/12/2015 31/12/2014

Interest expense from loans with variable interest rates 137 316

Increase in interest expenses assuming a fictitious increase in

variable interest rates by 100 basis points 69 464

Decrease in interest expenses assuming a fictitious decrease in variable interest rates by 100 basis points

-69 -135

In this fictitious example, a change in interest expenses would have a direct effect on the Group’s consolidated profit/loss and Group equity net of related income tax effects.

the majority of the remaining investments in eastern europe and the Black Sea Region are financed by equity. Any financing taken for these investments is recognised at the project level.

Because low interest rates prompt a rise in real estate transaction prices, the level of interest rates also effects the purchase prices of newly acquired properties. Interest rate levels also play a significant role in valuing investment properties.

the executive Board evaluates its interest rate policy on a regular basis and in close collaboration with the Supervisory Board.

credit risk

the reported financial instruments represent the maximum credit and default risk. In the context of Group-wide uniform risk management standards, counterparty risk is assessed and supervised on a uniform basis. the aim is to minimise default risk. no insurance is taken out for counterparty risk. there is generally no significant concentration of credit risk within the Group. An analysis of impaired receivables is provided in the following table:

31/12/2015

eurk Gross recei-vables Impairment total

trade accounts receivable and other receivables 18,255 -3,868 14,387 Financial receivables and other financial assets 26,611 -591 26,020

44,866 -4,459 40,407

31/12/2014

eurk Gross recei-vables Impairment total

trade accounts receivable and other receivables 11,731 -2,444 9,287 Financial receivables and other financial assets 4,100 -3,179 921

15,831 -5,623 10,208

overdue receivables are subject to impairment based on the status of the information available. It is assumed that the receivables not overdue or impaired have retained their value and are therefore collectable. this assumption is subject to ongoing monitoring.

liquidity risk

During the Company’s initial phase, liquidity risk was primarily managed by keeping liquidity reserves in the form of bank deposits available at all times and, to a limited degree, credit lines that could be drawn down. today, the liquidity position is significantly more dependent upon proceeds from disposals and the planned prolongation of loans as they come due. the liquidity position is also affected by additional contributions for the continued financing of projects. Generally, there are no significant concentrations of liquidity risk.

Further information on risk management and financial risks are provided in the risk report contained in the management report.

capital management and control

the overriding objective of the Group’s capital management is to secure the capability of future debt repayment and to preserve the Group’s financial net worth. the Group’s capital structure is managed according to economic and regulatory guidelines. on the part of DeMIRe, capital management is carried out by way of dividend payments and/or financing. DeMIRe strives to maintain a capital structure that is suitable for the risk inherent in its business and also subjects itself to the minimum capital requirements prescribed by the German Stock Corporation Act. the executive Board of DeMIRe is monitoring its compliance. these requirements were met both in the reporting year and in the previous year. DeMIRe also strives to have a balanced maturity structure for its outstanding liabilities. the intention of the executive Board is to obtain a sufficiently strong equity base and maintain the

confidence of investors and the market. Whereas the equity commitment in Germany stands at 20 % to 30 % of the investment volume, significantly higher equity commitments must be allowed for in the Cee/See/CIS countries, especially during the early stages.

the Group monitors its capital through its equity ratio, which is also an important key ratio for investors, analysts, and banks. Components of this ratio are the total assets in the consolidated balance sheet and the shareholders’ equity reported in the consolidated balance sheet that is attributable to both the parent company shareholders and non-controlling shareholders. DeMIRe intends to utilise the available equity as a means of possible leverage but will continue to maintain a solid equity ratio. As at December 31, 2015, the equity ratio was 25.6 % (December 31, 2014: 14.6 %). DeMIRe continues to strive for an equity ratio of more than 40 %. this goal will be achieved through different processes. Disposals should be carried out at least at the higher of the carrying amount and market value.